Dairy markets are starting to strengthen again
Milk and dairy product prices are on the rise, but the ability to pass on these increases through the supply chain to consumers is a challenge, according to the latest RaboResearch Dairy Quarterly titled “Farmers Welcome Higher Prices. Will Consumers?”
“Higher commodity prices are a welcome change for dairy producers,” says Ben Laine, RaboResearch Dairy Analyst.
“However, as those prices work through to consumers, their willingness to pay higher prices at restaurants and grocery stores remains to be seen, with much of the world either recovering from, in the midst of, or on the verge of some degree of recession.”
EU milk production is poised to grow in 2020, albeit modestly and from low year-ago levels. There are a number of hurdles to herd expansion, including environmental regulations. Import demand from China is expected to continue to rise, although it will likely be weaker in the first half due to higher carry-over stocks and strong comparables. The potential for weaker domestic demand in the face of economic woes could further reduce the need for imports.
Combined milk production growth among the Big-7 milk-producing regions is expected to remain at, or slightly below, 1% through Q1 2021.
Cheese and skimmed milk powder are taking the spotlight from butter in the latest price rally. Butter prices have mostly stabilized after varying degrees of decline around the world. Whey prices are gradually improving, but still face limitations due to the reduced demand for pig feed in China.
As market demand shifts towards protein and away from butterfat, processors will need to re-evaluate the product mix in order to capitalize on this reversal from the recent norms, which could lead to greater price volatility than experienced in the past few years.
Farmgate milk prices were a major talking point at last week’s Royal Ulster Winter Fair. Australian Jersey breeder Rob Anderson, who judged all the livestock classes at the event, told Farming Life that supermarkets have too much control within the farming and food chain.
“Consumers pay more for water than they do for milk at the present time. This is a ridiculous state of affairs, which must be addressed. Dairy farmers need to be treated more fairly.”
North Antrim dairy farmer Iain McLean agreed: “Brexit is not the real challenge facing the milk industry. But getting better prices for farmers is. Producers need at least 30ppl to give then any chance of covering their costs at the present time. We are well below this level at the present time.”